Razorfish: Ad Exchanges Are Becoming The Industry Standard

Like most major ad agencies, Publicis Groupe digital shop Razorfish became very bullish on ad exchanges this past year, increasing the amount of money it directed through real-time bidding platforms by 60 percent, the company said in its annual report. That was on top of the 66 percent increase in ad exchanges the agency funneled through exchanges in 2010. Though he won’t put a number on it, Jeff Lanctot, chief media officer at Razorfish, suggests that there will be similar growth in the use of exchanges as publishers begin to make more premium inventory available in auction-based marketplaces.

Recently, a report by IDC analyst Karsten Weide for supply side platform PubMatic said that RTB systems in 2011 will be about $1.1 billion, which will nearly double to $2 billion in the U.S. next year.

Publishers’ fears diminish? One of the hurdles in expanding RTB has been publishers’ general wariness of the exchange model, which has led them to fear that it could ultimately devalue their premium direct sales. But as more marketing dollars are flowing through exchanges, publishers have little choice but to follow or lose those client relationships and budgets completely. Lanctot expressed understanding of publishers’ predicament, but said that the exchange model is different from the ad network approach that burned a few.

“If you look back at the ad network business, there were a number that added little value, but gained significant revenue by being arbitrage players.” Lanctot said. “Publishers rightly felt burned as those player took margin and gave little in return. The ad exchange business is a chance to the inequities and inefficiencies of the media buying business. Publishers don’t want to make the same mistake twice, certainly. But the RTB process is much more flexible in terms of the controls and transparency and degree of openness afforded to publishers.”

Ad spending breakdown: In general, Razorfish spent 25 percent more on online ad spending in 2011 over 2010 — the fourth year in a row of more than 20 percent gains in its web-based spending. Naturally, it stands to reason that a digital agency would spend more on interactive advertising — it’s not going to direct its clients’ money to local print newspapers, after all. But as a bellwether digital ad agency, the continual ramping of dollars is notable, because it signifies the rate of traditional dollars shifting to online.

Razorfish’s spending breakdown certainly conforms to rise of display, as that segment has received the largest share of the marketing spend pie with a 43 percent slice, well ahead of search, which got 36 percent. Networks and exchanges were next with 13 percent of Razorfish’s spending. Although there’s a lot of excitement around social and mobile, Razorfish only spent 4 percent slices on both.

“Within display, mobile ad spending is up 10 percent,” Lanctot said in an interview with paidContent. “Mobile was always felt that it was on the verge, and that marketing budgets lagged behind. But that really began to change this year, as marketers began taking it more seriously.”

Mobile and multitasking: Mobile ad spending has been helped by the marked degree of “multitasking” by consumers who will sit on their couch with a TV remote in one hand and a smartphone or tablet in the other.

A study conducted by Razorfish and Yahoo contained in the Outlook examines what the two consider to be the largely untapped potential of “media multitasking. The two content that advertisers tended to emphasize mobile as a stand-alone medium, when really, they would get more out of looking for ways to connect mobile with TV.

Among the highlights of the multitasking survey — were:

— Nearly 80 percent of respondents multitask on their mobile device while watching TV at home. In fact, 15% of that group will stay on their device for the duration of the show.

— More than 86 percent of mobile web users surf the mobile internet while watching TV. Consumption while watching TV now accounts for 20 percent of smartphone use and 30 percent of tablet use.

— Just as households often share the TV watching experience, 50 percent of iPad owners share their iPad. Somewhat surprisingly, 30 percent of smartphone apps owned by parents were downloaded by their children

— 38 percent of respondents are actively searching for more information about the products they come across on TV. (Hint to media companies: closely align your TV advertising to your mobile offerings.

— TV ad spending is the largest major ad medium and its dominance seems assured for years to come, especially considering how small mobile is — eMarketer expects it to top $1 billion for the first time this year — relative to roughly $30 billion currently online. But Razorfish report sees mobile ad spend leaping over TV in 10 years time.

“Even if TV retained its 0.5 percent average ad spend growth rate from 2000 to 2010, ad spend in 2021, 2022 and 2023 would be $64.68, $65.01 and $65.33 billion, respectively,” the study concludes. This scenario has mobile ad spend surpassing TV ad spend in 12 years, only a two-year delay.

The right distraction: The notion of joining TV and mobile is not as seamless as it sounds. When mobile and TV are being experienced simultaneously, mobile appears to capture the user’s attention.

Razorfish points to an Interpublic Group study found that 94 percent of TV viewing is distracted by multitasking with another media. Notably, smartphones were the largest attention grabber, accounting for 64 percent of user diversions from TV. And when are user most apt to be distracted from their TV? When there’s a commercial break. But that also means that an advertiser has a greater chance of prompting some online action from a viewer. For example, Yahoo measured 5 to 20 percent increases in traffic during ad breaks for large TV events like the Academy Awards.

Ultimately, the question is whether publishers and advertisers can expect that sort of activity around less hyped primetime fare, but at least for the moment, there is a ready and willing audience for these cross-platform marketing plays. (Razorfish’s Outlook can be downloaded here.)